Banks Improve Derivatives Disclosure

The report - by the Basle Committee on Banking Supervision and the Technical Committee of the International Organisation of Securities Commissions - says disclosure of both qualitative and quantitative information has improved.

Of a total of 79 institutions participating in the survey, 71 discussed the objectives and strategies of their trading activities, compared with 38 when the survey was first conducted in 1993. Sixty-six institutions had disclosed the same information in relation to their non-trading activities, up from 37 two years earlier.

The number of institutions giving more information about how they monitor their credit and market risks has almost doubled over the same period. However, these institutions remain in a minority.

 

The report pointed out that more than half of the institutions included in the survey still do not discuss how these risks arise and how they are managed.

The survey also showed that institutions differ in the level of detail they are willing to make public.

But despite these shortcomings, the report comes to the conclusion that there have been notable enhancements in the qualitative discussions.

There has also been an improvement in the disclosure of quantitative information. A noteworthy development in 1995 was the continued expansion in the number of institutions disclosing quantitative information on their exposure to market risk, the report says.

In 1995, 36 banks provided value-at-risk based disclosures, as compared with 18 in 1994 and 4 in 1993.

However, the institutions covered by the survey continue to differentiate between trading activities and non-trading activities.

The report points out that the number of banks that furnished quantitative information on their non-trading activities remained low, while there was some increase in the number of institutions providing quantitative disclosures of trading account market values.

The treatment of credit risk also remains patchy in some cases.

While 41 institutions provided information on counterparty credit quality, up from 27 in 1994 and only 6 in 1993, few institutions chose to provide information on collateral and other credit enhancements.

But overall, the report shows that the representative sample of financial institutions appears to follow the public disclosure recommendations issued in November 1995 by the Basle Committee and Ioscos Technical Committee.